Citi rubbishes Nasdaq compensation offer for Facebook IPOcalypse

Citigroup has let the Securities and Exchange Commission (SEC) know that it is not happy with the Nasdaq stock exchange's offer of $62m compensation for the Facebook IPOcalypse.

Citi went to town on how badly it thinks Nasdaq mishandled the first day of Facebook trading in a 17-page letter to SEC yesterday, published [PDF] by the New York Times.

The proposed compensation, according to Citigroup, would only cover a "fraction of its losses", which happened when a technical glitch on the Nasdaq's systems stopped trades from being properly recorded. Traders couldn't see whether their buy or sell orders on the social network's shares had gone through and ended up redoing the orders and getting more or less stock than they wanted. Some orders were held up and then went through, meaning shares were bought or sold at a different price than the trader wanted.

"Nasdaq was grossly negligent in its handling of the Facebook IPO, and as such, Citi should be entitled to recover all of its losses attributable to Nasdaq's gross negligence, not just a very small fraction as is currently the case under the proposed SEC Submission," the firm complained.

Citigroup has reportedly lost around $20m over the botched IPO, while UBS admitted to a $356m loss in its latest quarterly report.

Originally, Nasdaq offered a $40m compensation pot, but soon upped this to $62m when the chorus of complaints from investment firms started. The stock exchange's offer has to be cleared by the SEC, which has invited investment groups and financial institutes like Citigroup to let it know what they think of the offer.

Nasdaq has said that it can't be held liable for the glitchy Facebook IPO because it was acting in a regulatory capacity at the time. Citigroup rubbished that claim in its letter, saying that Nasdaq is a profit-maximising publicly held corporation and it was acting in that capacity during the IPO.

"The era of market self-regulation has passed. NASDAQ no longer regulates its market participants; they are regulated by FINRA [the US Financial Industry Regulatory Authority watchdog]," the letter said.

"The hundreds of millions of dollars of losses suffered by market participants in connection with the Facebook IPO resulted from a series of hasty, self-interested and high-risk business decisions by Nasdaq, which did not take full account of the negative downstream effects of those decisions."

Other investment firms have also responded to Nasdaq's offer by filing paperwork with SEC. Watermill Institutional Trading said that it disagreed with how the exchange had calculated how much they owed traders, but hedge fund Citadel has asked the SEC to approve the plan. ®